But state gets more bad news: $426M hole in budget is likely to grow

Minneapolis probably would stop filling potholes and making other street repairs.

And tiny Arco (population 95) on the South Dakota border could be forced to close its fire department.

Those were among the worst-case scenarios that more than 75 mayors and city council members from across Minnesota described at the Capitol on Wednesday as they pleaded with state officials not to cut the state aid payments due later this month.

Gov. Tim Pawlenty and the Legislature are considering cuts in local government aid, among other options, to plug a $426 million hole in the state budget that ends June 30.

State economist Tom Stinson said the budget problem is likely to get $30 million to $70 million worse. He told the Senate Taxes Committee that more recent bad news about job losses wasn't factored into the budget forecast he issued last week. Job losses reduce state income and sales tax collections.

Cities are scheduled to receive $280 million in aid and property tax relief payments Dec. 26. That's an inviting target for state budget-cutters.

But slashing local government aid would have "dire consequences," Apple Valley Mayor Mary Hamann-Roland, president of the League of Minnesota Cities, told the Senate committee.

"In this economy and following (years of budget cuts), cities simply don't have the flexibility to roll with the punches. They will have no choice but to cut core services," she said.

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Most cities would have to cut spending or dig into reserves because they could not replace lost state aid by raising taxes. They have already set their 2009 property tax levies, and state law bars them from increasing the levies at this late date.

House Taxes Committee Chair Ann Lenczewski, DFL-Bloomington, said the Legislature could pass a law by early January authorizing cities to impose emergency property tax levies to make up for state aid cuts. But Pawlenty and legislative leaders have said they oppose increasing property or any other taxes to balance the budget.

Despite the warnings of dire consequences, Pawlenty told a group of mayors that he plans to cut state aid to cities to help balance the budget.

"He didn't say how wide or how deep the cuts would be," St. Paul Mayor Chris Coleman said after the meeting in the governor's office.

"Once again, the state is going to solve its budget problem by pushing it down to the local level," Coleman said. "It's frustrating and unfair."

Pawlenty spokesman Brian McClung said the governor hasn't decided how much to reduce aid to cities. Pawlenty and legislative leaders met with a small group of mayors to discuss "possible ways to mitigate the effects (of cuts) while dealing with them fairly," McClung said.

While city officials asked to be spared in the first round of cuts that Pawlenty, in consultation with legislative leaders, is likely to make this month, they said they expect their state aid to be slashed in the next two-year budget cycle, when state finance experts are projecting a whopping $4.85 billion deficit.

For the first round of cuts, legislative leaders said they would encourage Pawlenty not to balance the books on the backs of cities, but rather make "proportionate" cuts across the state budget.

"I think everyone is willing to take a little nick," said Senate Taxes Committee Chair Tom Bakk, DFL-Cook. "My goal is to make sure we share the pain."

But a proportionate cut in state aid to cities would be about $25 million, which would result in 10 percent reductions in their December aid payments, said Jim Miller, executive director of the League of Minnesota Cities.